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TSX falls as worries mount over Japanese economy

The mining sector helped push the Toronto stock market lower Monday as investors tried to assess the economic impact of last week’s catastrophic earthquake and tsunami in Japan.

By Malcolm MorrisonThe Canadian Press

Mon., March 14, 2011

The mining sector helped push the Toronto stock market lower Monday as investors tried to assess the economic impact of last week’s catastrophic earthquake and tsunami in Japan.

The S&P/TSX composite index closed well off the lows of the session thanks to improvements in the energy and financial sectors, coming off a 163-point deficit to close down 55.06 points at 13,619.19.

But the market racked up steep declines in the stock of uranium miners as Japanese emergency crews fought to control overheating nuclear reactors.

The TSX Venture Exchange was down 73.68 points at 2,193.07.

The Canadian dollar closed down 0.16 of a cent at 102.82 cents US.

“(Japan) is an enormous problem and it’s not going to go away easily or quickly,” said John Stephenson, portfolio manager at First Asset Funds Inc..

“You can make an argument that there will be a rebuilding that’s necessary,” Stephenson said. “That may be good for metal stocks and metal prices and things like that ... (but) it’s essentially going to be a huge undertaking and the government doesn’t have the money and continues to borrow in order to fund it.”

The TSX energy sector slipped 0.16 per cent amid a volatile day on crude oil markets. The April crude contract on the New York Mercantile Exchange ended the day up three cents at US$101.19 a barrel after earlier falling as low as US$98.47 on sentiment that the Japanese disaster has more or less frozen the world’s third-largest economy.

Three of Japan’s five largest refineries have been shut down, which will immediately crimp demand for crude at the world’s third-largest crude consumer.

But geopolitical worries in the Middle East supported the price of oil late in the session after a military force from Saudi Arabia and other Gulf states moved into Bahrain to shore up that country’s Sunni rulers in the face of escalating Shiite-led protests.

Crude prices ended lower in four out of the five sessions last week as concerns receded that heavy fighting in Libya would spread to oil-rich countries in the Persian Gulf.

Suncor Energy (TSX: SU) lost 21 cents to C$42.09 and Imperial Oil (TSX: IMO) was down 47 cents at C$49.28.

Stocks in uranium miners tumbled after water levels dropped precipitously Monday inside a Japanese nuclear reactor, twice leaving the uranium fuel rods completely exposed and raising the threat of a meltdown, hours after a hydrogen explosion tore through the building housing a different reactor.

General Electric designed all six of the reactors at the Fukushima Daiichi nuclear plant in Japan and its shares were down 44 cents at US$19.92.

Also, the Swiss government on Monday abruptly suspended plans to build and replace nuclear plants as the explosions spread worries about atomic energy safety in Europe and investors assume that nuclear power development has suffered a huge setback. Germany also put on hold its plans to extend the life of its nuclear power plants.

Cameco Corp. (TSX: CCO) dropped $4.62 or 12.72 per cent to $31.70, Uranium One (TSX: UUU) fell $1.65 or 27.68 per cent to $4.31 while Paladin Energy (TSX: PDN) lost 99 cents or 21.24 per cent to $3.67.

The base metals sector lost two per cent as demand concerns continued to push copper prices lower with the May contract down two cents at US$4.19 a pound. Teck Resources (TSX: TCK.B) fell $1.37 to C$49.56 as the company slashed its first-quarter coal sales guidance by 13 per cent because of unusually bad winter weather that played havoc with rail shipments. Equinox Minerals (TSX: EQN) declined 37 cents to C$4.84.

The gold sector was mixed as the April contract on the Nymex gained $3.10 to US$1,424.90 an ounce. Kinross Gold Corp. (TSX: K) faded 14 cents to C$14.80 while Goldcorp Inc. (TSX: G) improved by 24 cents to C$46.36.

The financials sector helped lift the TSX from earlier lows late in the session with Scotiabank (TSX: BNS) up 65 cents at $58.31.

But insurers continued to decline with Manulife Financial (TSX: MFC) down 61 cents at $16.74.

There are estimates that Japan’s devastating earthquake and tsunami may cost the global insurance industry as much as US$60 billion.

Meanwhile, Japan’s stock market had one of its worst days since the 2008 financial crisis, with the benchmark Nikkei 225 plunging 6.2 per cent, wiping out this year’s gains and hitting its lowest level in four months.

The disaster caused massive power shortages that are disrupting factories and the country’s domestic auto makers have all but suspended production.

On the economic front, Statistics Canada reports that industries in this country operated at 76.4 per cent of their production capacity in the fourth quarter. That is up slightly from 76.2 per cent in the third quarter.

The agency noted that this was the sixth consecutive quarterly increase in the capacity utilization rate, although the pace of growth slowed progressively in 2010.

The Dow Jones industrials lost 51.24 points to 11,993.16.

The Nasdaq composite index was down 14.64 points at 2,700.97 while the S&P 500 index gave back 7.89 points to 1,296.39.

The negative showing on the TSX came on the heels of a four per cent slide last week as investors worry that a rally that has gone on practically non-stop since last summer has ended because economic conditions do not look as favourable, in part because of sharply higher oil prices.

Stephenson observed that the declines come at a time when the market has been coming to terms with several issues.

“One has been the Chinese data, the current account deficit, actually running a deficit instead of a surplus, that in part reflects the fact that the world they’re exporting to is weak and they can’t raise prices and two, imported commodity prices are high,” he said.

“(There has also been) unrest in the Mideast, the ongoing sovereign debt follies in Europe and then Japan, the third-largest economy tanking.”

In other corporate news, Warren Buffett’s Berkshire Hathaway Inc. is buying specialty chemicals company Lubrizol Corp. for about US$9 billion in cash.

The companies said Monday that the transaction also includes about $700 million in net debt. Berkshire will pay $135 per share, a 28 per cent premium to Lubrizol’s closing stock price Friday of $105.44. Lubrizol stock soared $29.24 or almost 28 per cent to $134.68 on Monday.

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